The History of Management by Objectives

By Victor Hoang · Updated Oct 24, 2026

Peter Drucker framed the problem in his 1954 book The Practice of Management. In a business, he wrote, managers are not automatically directed toward a common goal. Specialized work, hierarchy and differences in vision between levels got in the way. Every era below is an attempt to close that gap.

Management by objectives (MBO) was set out in full by Drucker in that book. The practice of setting goals for managers is older. Its roots lie in the systematic management of early twentieth-century corporations. The throughline is a tension that never goes away. Objectives can be a manager's own compass, or a boss's scoreboard. The same tool has been used both ways for seventy years.

This article tells how the idea formed, spread, was attacked and was rebuilt. For the method itself, read our guide to management by objectives. For the part of the story that runs through Intel and Google, read the history of OKRs. The wider backdrop is in the history of management.

Timeline at a Glance

The Quota Tablets (around 2300 BCE to 200 CE)

Scribes and officials answer to numbers they did not choose

Around 2300 BCE, a scribe in the Mesopotamian city of Umma pressed a terracotta tablet less than 10 centimeters tall. The Hood Museum at Dartmouth holds it: an administrative record of labor that lists the work days needed for heavy farm tasks, using fixed daily rates for each worker. Reed plucking is rated at 15, 20 and 12 sar per worker per day, and digging earth at 7, and the labor totals follow from dividing the job by the rate. A scribe's seal closes the record.

The same logic of numbers handed downward appears in imperial China. Under the Qin and Han, a 2020 study in Asia Major describes local scribes preparing annual account-books for the next level of the bureaucracy under pressure from both the state and their superiors. A 2023 article in Frontiers of History in China, based on the Juyan bamboo and wooden slips, finds that Han "incompetence" came to include poor performance assessment results, and that dismissal was the most common penalty.

Keep the precursor apart from the concept. These were quotas and assessments imposed from above. Nobody agreed an objective with a superior, and nobody called any of it management by objectives. What carries forward is the shape: a number, a report and a consequence. The modern story is about whether the person doing the work gets a say in the number.

What this means for teams today: A target someone else computed from a rate card is the oldest form of the idea. If your goals work that way, you are running a quota, whatever your system calls it.

The Systematic Managers (1890s to 1952)

DuPont, General Motors and General Electric build the machinery

MBO needed large companies with many managers before it could exist. A 2013 paper by Albert David, a management scholar at Université Paris Dauphine, argues that MBO has roots in the "systematic management" movement that began at DuPont in the late nineteenth century, and that it reflects the logic of the multidivisional structure, the form in which a firm splits into semi-autonomous divisions. A multidivisional company has a problem a one-owner shop does not: headquarters cannot watch every division, so it must agree on results and let the division run itself.

Drucker himself placed the first use even earlier than his book. In a 1976 article on MBO in government, as reported in a 1977 Department of Justice paper, Drucker credited Luther Gulick and colleagues in the late 1930s for the concept, and said its application began in the private sector at DuPont after World War I and General Motors in the mid-1920s.

Drucker's own contact with the large corporation came in 1943, when General Motors invited him to run a two-year analysis. According to the Drucker Society Europe, he attended every board meeting and interviewed managers, department heads and workers, and published the results as Concept of the Corporation in 1946. The Drucker Institute adds that it was at GM that he met chairman Alfred Sloan. David's paper gives 1952 as the date General Electric first put MBO into practice, a date he cites as the common story while arguing that the "breakthrough" framing overstates it.

The era's lesson is that the method came from a structure before it came from a book. And it left an unsolved problem: a company full of divisional goals still had no account of how a manager should feel about them.

What this means for teams today: Objectives become necessary when you can no longer see everyone's work. If your team is small enough to share a room, you may need a conversation more than a system.

Drucker's Book (1954-1960s)

The practice gets a name and a philosophy

In 1954, Drucker published The Practice of Management. The Drucker Institute calls it widely considered the first book to organize the work of running an organization into an integrated body of knowledge. The text is available on the Internet Archive, and its eleventh chapter, "Management by Objectives and Self-Control", is the founding document of the method.

The argument runs in steps. Business, Drucker writes, contains three powerful factors of misdirection: the specialized work of most managers, the hierarchical structure of management, and the differences in vision between levels. He tells the story of three stonecutters asked what they were doing. One answered that he was making a living, a second that he was doing the best stonecutting in the county, and the third that he was building a cathedral. The third, he says, is the true manager. The second is the problem, because craft pride can turn into polishing stones.

The remedy is that each manager's job be directed toward the objectives of the whole business, and that managers take part in setting their own. Drucker describes executives who have each subordinate write a "manager's letter" twice a year. In it the manager defines the objectives of his superior's job and his own, lists the performance standards he believes apply, names what helps and hinders him, and proposes what he will do in the next year. If the superior accepts the letter, it becomes the charter under which the manager operates.

Now the second half of the chapter title. For Drucker, measurement existed to serve self-control. The word "control," he writes, can mean the ability to direct oneself and one's work, or the domination of one person by another. Objectives must serve the first meaning and never the second. That distinction is the thread the whole later history keeps dropping and picking up.

The method spread outside the corporate staff room too. At HP, the company's own timeline says the first off-site meeting of senior managers in 1957 produced written objectives, in keeping with the company's practice of management by objective, to guide daily decisions through rapid growth. They covered profit, customers, fields of interest, growth, people, management and citizenship. Dave Packard later said the idea was that if everybody agreed on the objectives, people could be trusted to move in the same direction.

Our profile of Peter Drucker's leadership covers the man, and who deserves the title father of modern management covers the rival claimants. The shop-floor ideas Drucker was reacting against are in the history of scientific management.

What this means for teams today: Let people draft their own objectives and bring them to the conversation, as the manager's letter did. A goal a person wrote is a plan. A goal handed down is a quota.

The MBO Boom (1965-1970s)

Manuals, agencies and a system for everyone

By the mid-1960s, MBO had enough converts to need a handbook. In 1965, George Odiorne published Management by Objectives: A System of Managerial Leadership with Pitman, a 204-page book that turned Drucker's philosophy into procedure. Procedure is what organizations could install, and they did.

The largest installation was in Washington. A January 1973 White House statement on running the executive branch named Roy Ash as an Assistant to the President for executive management. According to the 1977 Department of Justice paper by James F. Hoobler, the Nixon and Ford administrations, through the Office of Management and Budget, directed 11 Cabinet departments and 10 independent agencies to develop MBO systems, define priority program objectives, and report key objectives and results to the President. The Justice Department promulgated its own MBO system on February 24, 1974, to set specific program objectives each fiscal year and track progress toward them. The same paper notes that the public sector, and the federal level in particular, had been slow to adopt MBO.

Note the shift in who wrote the objectives. Drucker's manager drafted a letter to his boss. The federal system flowed from the President's priorities down through agencies and back up as reports. The paper also observes that by the time it was written, attention in academia and consulting was moving toward zero-base budgeting, which presidential candidate Jimmy Carter had used as governor of Georgia. MBO's moment as the new idea was already passing.

What this means for teams today: When a method becomes a mandate, its form survives better than its purpose. Ask what each form in your system is for, and who it helps.

The Backlash (1970-1990s)

Critics call it a boss's scorecard

The reaction began early. In 1970, Harry Levinson published "Management by Whose Objectives?" in HBR, now reissued as a classic. He argued that the typical MBO effort perpetuates and intensifies hostility, resentment, and distrust between a manager and subordinates, and described it as "industrial engineering with a new name" brought to higher managerial levels. The reference is pointed: the efficiency methods that scientific management used on the shop floor had reached the executive suite.

The attack from the quality movement was blunter. W. Edwards Deming's 14 points include, at point 11b, the instruction to eliminate management by objective and management by numbers and numerical goals, substituting leadership.

Even Drucker sounded wary. On the cover of a 1995 issue of the American Management Association's magazine, the line ran that management by objectives works if you know the objectives. The cover's second sentence says that 90 percent of the time you don't.

The critics had a common target. They were not attacking Drucker's manager's letter. They were attacking an objective chosen by the boss, measured by a number and tied to a review. For the assumptions about people that sit under both views, see the history of Theory X and Theory Y.

What this means for teams today: If your MBO or OKR feels like a performance review in disguise, you are in Levinson's territory. Check whether objectives are negotiated, and whether a miss starts a conversation or a penalty.

The Quiet Descendant (1980s-present)

MBO survives as OKRs and as everyday goal setting

MBO did not die. It changed names and shortened its cycle. At Intel, Andy Grove rebuilt it. Doerr's site says Grove's original name for his version was "iMBOs," for Intel Management by Objectives, and that OKRs differ from the Drucker style by running quarterly rather than annually and by being divorced from compensation. John Doerr, according to the same site, presented them to Google's founders in 1999. The details of Intel, Google and the book that followed are in our history of OKRs, and we do not retell them here.

Evidence on how goal systems perform today is cautious. A 2023 preprint by Jenna Butler, Thomas Zimmermann and Christian Bird studied goal setting at a large multinational software company, using 47 interviews and a survey of a team of over 4,000 engineers that drew 512 responses. It found that tracking, measuring and setting goals is hard regardless of tools, that middle management is critical to turning lofty goals into work items, and that engineers' attitudes decide whether the process succeeds. That echoes Drucker's 1954 insistence that managers take part in their own objectives.

Today's practitioners still choose between Drucker's two meanings of control. If you are writing goals this quarter, our guides on SMART business objectives and strategic objectives cover the craft. The sequence of ideas around it is laid out in the management theory timeline and the schools of management thought.

What this means for teams today: The name matters less than three choices: who writes the goal, how often it is reviewed, and whether it is tied to pay. History suggests every system that drew criticism got at least one of them wrong.

Key People

Key Facts

Key Facts: MBO History

• Drucker's chapter "Management by Objectives and Self-Control" appeared in The Practice of Management in 1954.
• Drucker's manager's letter was written twice a year and became the manager's charter once the superior accepted it.
• A Hood Museum tablet from Umma, around 2300 BCE, records daily output rates per worker for farm tasks.
• The Nixon and Ford administrations directed 11 Cabinet departments and 10 independent agencies to develop MBO systems.
• Levinson called typical MBO "industrial engineering with a new name".
• A 2023 study drew on 47 interviews and 512 survey responses at one software company.

The Pattern Behind the History

We call this the Compass and Scoreboard pattern. It is our reading of the timeline, not a research result.

1. Structure first. Objectives appear when a firm grows too big to watch, as in the multidivisional corporations of DuPont and GM.
2. A philosophy arrives. Drucker gave the practice a purpose: self-control, not control by others.
3. The form spreads faster than the purpose. Handbooks, agencies and mandates installed the procedure.
4. The scoreboard wins. Objectives drift into the review file, and critics such as Levinson and Deming attack that use.
5. It returns in a new shape. Shorter cycles and a separation from pay bring the compass back, as in OKRs.

What It Teaches Teams Today

• Let the person who does the work write the first draft of the goal.
• Keep the review a conversation. The moment a goal feeds a rating, people shrink it.
• Know the objective before you measure. Drucker's own 1995 line is the test.
• Fund the middle managers. Both Drucker's letter and the 2023 study put them at the center.
• Notice when your system has become a form. Then ask what it is for.